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Sheet1 bank Reconciliation balance Per Depositor balance Per Bank Statement Add: Add: Deduct: Deduct: Adjusted Balance Adjusted Balance Sheet1 Perpetual Inventory Card Purchases Cost of Merchandise Sold Inventory Date Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Sheet1 Perpetual Inventory Card Purchases Cost of Merchandise Sold Inventory Date Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Name Spring Semester 2020 Problem #1 ABC Company uses a perpetual inventory system and the information for Product LG58x is shown below. Complete a perpetual inventory sheet for this product using the First-in, First-out (FIFO) Method . March 3rd Inventory 24 units @ $4.00 March 10th Purchased 30 units @ $4.10 March 12th Sold 30 units @ $11.75 March 18th Sold 10 units @ $11.75 March 25th Purchased 24 units @ $4.12 March 30th Purchased 12 units @ $4.15 March 31st Sold 20 units @ $11.75 Problem #2 Complete a perpetual inventory sheet for the product in the first problem (above) using the Last-in, First-out (LIFO) Method . Problem #3 Prepare a bank reconciliation for ABC Company with the following activity during the month of March. · The bank statement shows your balance as $5,792.24 but ABC’s balance shows $6,825.88. · ABC Company found that $2,134.22 of the checks that it had written were still outstanding. · The bank printed the bank statement before ABC’s recent deposit of $3,255.88 was made. · ABC Company found a mistake on a recent entry that it made. The accountant deducted $101 when paying on account instead of the $110 it should have been. · The bank statement showed that one of the checks ABC Company deposited was “bad’. The amount of the bad check was $17.85. · The bank charged ABC Company $212 for various service fees. · The bank collected $326.87 for ABC Company as a complimentary service. Instructions: (a) Complete a bank reconciliation for ABC Company (b) Journalize the appropriate entries.

Paper For Above instruction

Introduction

Bank reconciliation is a vital process in accounting that ensures the accuracy of a company's financial records by matching the company's cash records with the bank's statements. It helps identify discrepancies such as outstanding checks, errors, bank fees, and other transactions that may not yet be recorded in the company's books. For ABC Company, performing an accurate bank reconciliation for March involves analyzing bank statements, company records, and adjusting entries to reconcile the differences.

Part 1: Perpetual Inventory Using FIFO

The first problem involves maintaining a perpetual inventory sheet for Product LG58x using the FIFO method. FIFO presumes that the earliest acquired inventory is sold first.

Initial Inventory and Purchases

- March 3: 24 units @ $4.00

- March 10: Purchased 30 units @ $4.10

- March 25: Purchased 24 units @ $4.12

- March 30: Purchased 12 units @ $4.15

Sales Transactions

- March 12: Sold 30 units, which under FIFO, would come from March 3 inventory (24 units @ $4.00) and the remaining 6 units from March 10 (30 units @ $4.10).

- March 18: Sold 10 units, coming from remaining units in March 10 (24 units @ $4.10).

- March 31: Sold 20 units, which would be from remaining units in March 10 and the newer inventory.

The inventory valuation under FIFO method requires tracking the flow of inventory units, updating quantities, and calculating the cost of goods sold (COGS) and ending inventory after each sale.

Calculations

For March 12 sale:

- 24 units @ $4.00 = $96

- 6 units @ $4.10 = $24.60

- Total COGS: $120.60 for 30 units

Remaining inventory after March 12:

- 24 units @ $4.10

- 24 units @ $4.12

- 12 units @ $4.15

Similarly, calculations for March 18 and March 31 sales follow, updating the inventory quantities and costs.

This perpetual method provides real-time inventory valuation, critical for accurate financial reporting, especially in a retail context where inventory turns quickly.

Part 2: Perpetual Inventory Using LIFO

The second problem models inventory management using LIFO, where the latest purchases are sold first.

Applying LIFO:

- March 12 sale: 30 units sold, coming from the most recent purchases:

- 30 units @ $4.10 (all from March 10 purchase)

- Remaining inventory:

- 0 units @ $4.10

- 24 units @ $4.00

- 24 units @ $4.12

- 12 units @ $4.15

- March 18 sale: 10 units sold:

- 10 units @ $4.15 (from March 30 purchase; or the last batch)

- March 31 sale: 20 units:

- 12 units @ $4.15

- 8 units @ $4.12

This calculation ensures that the most recent purchases are recognized as COGS first, affecting profit margins and inventory valuation.

The perpetual LIFO inventory system requires similar detailed tracking but will generally result in higher COGS during periods of rising prices, thus impacting net income.

Part 3: Bank Reconciliation Process

Bank reconciliation involves adjusting the company's cash book balance to match the bank statement balance by accounting for outstanding checks, deposits in transit, errors, bank fees, and collections.

Given Data and Adjustments

- Bank statement balance: $5,792.24

- Company balance: $6,825.88

- Outstanding checks: $2,134.22

- Recent deposit not reflected in bank statement: $3,255.88

- Company recorded wrongful deduction: $101 instead of $110 (additional $9 liability)

- Bad check deposited: $17.85 (needs to be subtracted)

- Bank service charges: $212

- Bank collection for company: $326.87

Reconciliation Procedure

Start with both balances. Adjust the bank statement balance by adding deposits in transit and subtracting outstanding checks, bank fees, and bad checks. For the company's books, reflect bank collections and correct errors such as the wrongful deduction.

Sample Reconciliation Steps

1. Adjust bank statement balance:

- Add deposits in transit: +$3,255.88

- Subtract outstanding checks: -$2,134.22

- Subtract bank fees: -$212

- Subtract bad check: -$17.85

- Add bank collection: +$326.87

2. Adjust company's book balance:

- Add bank collection: +$326.87

- Deduct bank fees: -$212

- Correct error deduction: add $9

- Deduct bad check: -$17.85

3. Reconcile adjusted balances to find the true cash position.

This process ensures that both records agree upon completion, and discrepancies are properly recorded.

Journal Entries

- To record bank collection:

```plaintext

Debit: Cash $326.87

Credit: Bank collections (or miscellaneous income) $326.87

```

- To record bank fees:

```plaintext

Debit: Bank service charges $212

Credit: Cash $212

```

- To correct the wrongful deduction:

```plaintext

Debit: Accounts payable or expense $9

Credit: Cash $9

```

- To record the bad check:

```plaintext

Debit: Accounts receivable or miscellaneous expense $17.85

Credit: Cash $17.85

```

Conclusion

The reconciliation process is fundamental for maintaining accurate financial records. By methodically adjusting the balances for outstanding checks, deposits in transit, bank charges, errors, and collections, ABC Company ensures integrity in its cash management system. Incorporating detailed records and prompt journal entries supports transparent financial reporting and facilitates audit readiness.

References

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